Section 28(2) of Indian Arbitration Act: Limits on Equity-Based Arbitration
Stories are grouped across languages, rewritten into a fixed editorial format, and linked to original sources. How we report.
TL;DR
- Section 28(2) of the Indian Arbitration and Conciliation Act restricts tribunals from deciding on an equitable basis without party consent.
- Practical decisions based on contract, law, and evidence are allowed, but ex aequo et bono rulings require explicit authorization.
- Indian case law distinguishes between disciplined adjudication and unauthorized equity-based awards.
- Accusations of equity-based rulings must be carefully analyzed against the boundaries set out by the Act.
Overview
An article published by Bar & Bench examines the interpretation and limits of Section 28(2) of the Indian Arbitration and Conciliation Act, 1996. The provision determines when an arbitral tribunal in India can decide disputes using principles of equity (ex aequo et bono) rather than strictly interpreting the contract and law. The analysis focuses on how tribunals may address gaps or ambiguities in commercial disputes, the importance of party consent for equity-based decisions, and how Indian courts approach the line between practical, evidence-based rulings and unauthorized equitable awards.
What Happened
Section 28(2) of India's Arbitration and Conciliation Act, 1996 allows arbitral tribunals to decide ex aequo et bono (on the basis of equity and fairness) or as amiable compositeur only if the parties have expressly authorized it.
Without express consent from the parties, the tribunal must decide according to the contract, governing law, and evidence on record.
Case law in India has drawn a distinction between authorized, disciplined adjudication and equity-based rulings; the Supreme Court and Delhi High Court have clarified that practical, evidence-based quantifications remain within the tribunal's powers as long as they do not rewrite the contract or depart from applicable law.
Courts have emphasized that not all rough or practical judgments constitute unauthorized equity; only awards based solely on fairness or a private sense of justice-without determining legal entitlement-run afoul of Section 28(2).
Context
Section 28(2) parallels Article 28 of the UNCITRAL Model Law, granting the possibility for equity-based arbitration only with mutual party consent.
Indian jurisprudence, including cases such as ONGC Ltd. v. Saw Pipes Ltd. and Associate Builders v. Delhi Development Authority, has reinforced the boundary between practical adjudication within the law and the unauthorized application of fairness.
Why It Matters
- This interpretation provides clarity for arbitrators, parties, and courts on when equity-based decisions are permissible in Indian-seated arbitrations.
- It reduces the risk of awards being set aside for exceeding mandate or for unauthorized equitable rulings, upholding the integrity of the arbitration process.